China car market: A consumption upgrade story

The figures always tell a different story if you look into details.

China’s automobile sales rose only by 0.2 percent in January from the year before, according to data from China Association of Automobile Manufactures (CAAM), which might make one think that the nation’s auto market boom is coming to an end.

Breaking down the figures, passenger car sales actually dropped 1.1 percent last month to 2.22 million units from the same period last year, seemingly offering more evidence that the mainland’s car sales growth has hit the brake.

However, if one looks at the sales of high-end brands, it’s another picture.

Mercedes-Benz reported that its China market sales surged 39.3 percent to a record high 59,000 vehicles last month from the year before, up nearly 30 percent from previous peak of 46,000 units in September last year. And China market already accounts for a third of the carmaker’s total sales.

Also, BMW said the sales of BMW and Mini vehicles soared 18.2 percent to 51,000 units in China in January, far above its overall sales growth rate of 6.8 percent. China contributed up to 36 percent of its total sales.

Industry insiders disclose that other foreign brands like Ford, Volkswagen, General Motors, Toyota and Nissan had average sales growth of nearly 20 percent in the first month of 2017.

Meanwhile, domestic brand passenger car sales dropped by 4.4 percent to 977,000 units in January from the previous year, and their market share slipped by 1.5 percentage points to 44 percent, according to CAAM data.

But not all Chinese carmakers are losing the battle. For example, Geely Automobile Holdings (00175.HK) reported that its sales jumped 71 percent to 102,000 units in January from the year before.

The company has been aggressively introducing high-end technology to its models after it acquired Volvo in 2010.

Currently, the average price tag of Geely cars is around 200,000 yuan, already a mid-range price point according to international standard.

Many Chinese consumers consider the overall quality of Geely cars as comparable to that of leading global brands. Also, the automaker enjoys exemption from 25 percent import duty, which helps the brand compete against foreign rivals.

By contrast, low-end carmakers like Wuling Hong Guang and Haima Automobile Co. recorded declines of 14.1 percent and 25.5 percent respectively in January sales.

The changing landscape of the China auto market highlights the consumption upgrade trend amid the rise of the middle class.

Also, many first and second-tier Chinese cities have introduced license plate lottery system in order to combat pollution and traffic congestion issues.

In Beijing, the chance to win a license plate is only 1.2 percent, for instance. Those who are lucky enough to “win the lottery” typically try to buy the best car they can afford, a factor also working in favor of mid- to high-end cars.

The share price of Geely has surged 92 percent over the last six months, and the market cap of the company is already close to HK$100 billion.

The strong showing is not surprising, given the trends in the China auto market.

For investors looking for more good bets, they should look at other Chinese carmakers that are also pursuing quality upgrade — firms such as like BYD Co. (01211.HK), Chongqing Changan Automobile Co. (000625.CN) and Dongfeng Motor Group Co (00489.HK).

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